Many credit unions sell mortgage loans to Government Sponsored Enterprises (GSEs) or other investors to increase capital and balance their portfolio risk. Selling loans provides liquidity, freeing up funds for additional lending so lenders can originate more loans. However, rising interest rates and inflation have curtailed loan applications. The Mortgage Bankers Association forecast that mortgage origination volume will drop about 15% in 2023 compared to the previous year.
Credit union lenders can offset revenue losses by retaining servicing of loans sold on the secondary market. Keeping servicing in-house benefits both credit unions and members by improving the member experience and generating servicing fee and other income.
In-House Servicing Is Essential for Member Satisfaction
For credit unions, customer service is priority No. 1. Transferring servicing to another institution jeopardizes member satisfaction. According to J.D. Power’s 2022 U.S. Mortgage Servicer Satisfaction Study, overall customer satisfaction and trust in the servicer drop when the mortgage is transferred to a servicer that is different from the originator. The originating firm that made the transfer also suffers, with only 15% of transferred customers saying they are “very likely” to consider using the original lender in the future.
Retaining servicing helps credit unions build borrower trust and loyalty. When servicing is done in-house, credit union servicers can provide the exceptional communication and customer service that members and regulators expect. The CFPB recently found that some servicers violated Regulation X by failing to inform consumers of all available loss mitigation options, resulting in some consumers not receiving information about options, such as deferral, when exiting forbearances. When servicing is outsourced, lenders have no control over the quality of the communication and overall customer service delivered by the third-party provider.
In-House Servicing Generates Servicing Fees and Other Income
In addition to benefitting members, in-house servicing generates significant revenue. Well-trained staff using the right mortgage servicing software can service 700 or more loans per employee. Doing some simple math, using the average loan size in February of ($433,300) and the standard service fee of 25 basis points for the year, each servicing employee can generate more than $750,000 in annual service fee income alone. Late fees and commissions on optional insurance can also increase the revenue.
By retaining servicing, credit unions maintain their relationship with members who may refinance (when interest rates drop) and/or use other products. Credit unions can become a trusted advisor to the member to help protect their home and offer Home Equity Lines of Credit for improvements or other options to generate additional revenue and provide a positive member experience. If credit unions don’t retain servicing, they give away their direct access to these borrowers and first-hand visibility to their mortgage loan.
Servicing Software Simplifies In-House Servicing
By investing in the right mortgage servicing software, lenders can effectively service their loans in-house. The right software helps servicers comply with investor reporting and other regulatory requirements and improves member experience.
To make in-house servicing efficient and effective, credit union servicers should use modern mortgage servicing software designed specifically to handle the complexities of the process. This software should integrate with other in-house software, such as the core system and loan origination system (LOS), to provide seamless data flow. Servicing software automates investor reporting, making it easy for credit unions to comply with investor reporting requirements.
Web applications give members convenient, immediate access to their up-to-date mortgage information, allowing them to make online payments and access real-time loan information and documents. Web applications are an easy way for servicers to communicate with borrowers.
Don’t Forget the Human Touch
While 90% of consumers use digital banking channels, according to a Citizens Financial Group survey, human interaction is essential when getting financial advice and executing more complex interactions. Two-thirds of consumers prefer to rely on human expertise when getting any financial advice.
Digital mortgage technology such as mortgage servicing software and web applications can provide loan information “on demand,” but many borrowers still want the human touch. While they may prefer to check their balance or make payments online, many members still want to interact with mortgage professionals when handling defaults, forbearance or other more complex issues. Credit union servicers that embrace a hybrid approach – blending self-service technology with support from well-trained mortgage professionals – will have more loyal, satisfied members.
By retaining servicing and utilizing the best mortgage servicing software, credit unions can increase revenue while delivering superior member service that promotes borrower retention. Modern web applications provide self-service options for routine borrower requests, giving credit union servicers more time to provide the personalized support needed for more complicated transactions.
Susan Graham is President/CEO of mortgage software company FICS (Financial Industry Computer Systems, Inc.) based in Addison, Texas.
Source: cutimes.com